Question

Suppose Mexicans suddenly develop a strong taste for Japanese anime (an animation style).

1. What happens to the demand for Japanese Yen (the currency used in Japan) in the foreign exchange market?
2. What happens to the value of the Mexican Peso in the foreign exchange market? What about Japanese Yen?
3. What happens to the quantity of net exports in Mexico, other than anime, as a result of your answer in part b? What about the Japan?

a.) ________________________

b.) Mexican Peso________________________

Japanese Yen________________________

c.) Mexican net exports________________________

Japanese net exports________________________

Answer 1

a) The demand for Japanese Yen would increase as Yen would be required to purchase anime. So the mexicans would exchange pesos for Yen, which would eventually increase the demand for Yen in foreign exchange market.

b) As value of mexican pesos will depriciate as the supply of pesos would increase in the foreign exchange market. So the currency will be devalued. The value of Japanese Yen would appreciate due to the increase in demand of Yen in the foreign exchange market.

c) The net exports of Mexico would increase. This is because the Mexican goods will be cheaper for the foreigners due to the depreciation of the Mexican pesos. For Japan, the net exports other than amine would decrease as the Japanese goods would become costly for the foreigners due to the appreciation in the value of Japanese yen.